Metro Corporation uses a predetermined overhead rate of $20 per machine hour. In deriving this figure, the company's accountant used:
A) a denominator of budgeted machine hours for the current accounting period.
B) a denominator of actual machine hours for the current accounting period.
C) a denominator of actual machine hours for the previous accounting period.
D) a numerator of budgeted machine hours for the current accounting period.
E) a numerator of actual machine hours for the current accounting period.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing estimated or budgeted overhead costs by an estimated or budgeted activity level. In this case, the activity level is the budgeted machine hours for the current accounting period. Therefore, choice A is the best option.

Metro Corporation Uses a Predetermined Overhead Rate of $20 Per